Definition of roll yield

This describes the cost of shifting between two futures contracts, usually with reference to commodity futures.

An investor who has bought a front-month oil future might wish to keep his position open (active) even though the front-month contract is due to expire. So the investor can sell the expiring front-month futures contract and buy the next maturing futures contract and this process is known as "rolling a position".

If the futures curve is in backwardation, that is downward sloping so that the front-month contract is more expensive than the next maturing contract, then the investor will earn a positive roll yield.

However, if the futures curve is in contango, that is upward sloping so that the the front-month contract is less expensive than the next maturing contract, then the investor will incur a negative roll yield. Roll yields can have a significant impact on total returns even if the spot price moves as anticipated by an investor. [1]

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